Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Jacobs Solutions Inc reported solid second quarter consolidated revenue with 5% growth and 3% adjusted net revenue growth, all organic.
- The company achieved a significant milestone in the separation of its Critical Mission Solutions and Cyber & Intelligence businesses, receiving all necessary approvals.
- Backlog increased by 2% year-over-year, with gross margin in backlog also increasing by approximately 50 basis points, indicating continued profitable growth.
- People & Places Solutions line of business demonstrated strong performance with record adjusted operating margin of 15.3% and adjusted operating profit growth of 15.3% year-on-year.
- Jacobs Solutions Inc is well-positioned for future growth with a robust pipeline across multiple core market sectors and strategic regulatory advancements in the environmental sector.
Negative Points
- Second quarter GAAP EPS from continuing operations was $1.29 per share, including impacts from amortization and restructuring costs, marking a 7% decrease compared to the previous year.
- Divergent Solutions experienced an 11% year-over-year decrease in adjusted net revenue and a 24% decrease in adjusted operating profit, influenced by a change in government funding strategy.
- A recent program loss in the Critical Mission Solutions segment is expected to put short-term pressure on performance in the second half of the year.
- Q2 free cash flow was negative $71 million as working capital increased, deviating from the exceptional performance in Q1.
- The company's unallocated corporate costs remain elevated, impacting overall profitability, although plans are in place to reduce these post-separation.
Q & A Highlights
Q: Can you give us more color into what's going on with Jacobs' backlog and how to think about it going forward?
A: (Robert V. Pragada - CEO & Director) In People & Places Solutions (P&PS), the backlog is at a record high since the segment's inception nearly 5 years ago. The book-to-bill ratio remains over 1x, with expected acceleration in backlog due to recent and upcoming awards. In Divergent Solutions, a change in funding strategy by the DoD, transferring responsibilities to the intelligence community, temporarily reduced the backlog. However, projects are expected to rebuild in the intelligence community's backlog over the next year.
Q: What has changed in the background in the second half that drove your guidance change?
A: (Kevin C. Berryman - Interim CFO) The guidance adjustment reflects prudence despite anticipating a 13% year-over-year increase in EPS. It accounts for known factors like inventory write-offs from Q1, maintaining a conservative yet positive outlook for the fiscal year.
Q: How is project selectivity playing out in your business, and what kind of projects are you saying no to?
A: (Robert V. Pragada - CEO & Director) Project selectivity remains a primary focus, especially as opportunities increase. Jacobs prioritizes long-term client relationships and high-value projects, particularly in water and life sciences, where pipelines are robust and growing.
Q: Can you discuss the outlook for the People & Places Solutions segment, particularly regarding margins and large awards expected in the back half of the year?
A: (Kevin C. Berryman - Interim CFO) The record 15.3% margin in Q2 is not expected every quarter due to mix variability. However, the outlook for margins remains positive, and while large awards are factored into guidance with a probability weighting, the pipeline's robustness supports optimism for future growth.
Q: What are your observations on labor availability, inflation, and retention across different geographies?
A: (Robert V. Pragada - CEO & Director) Labor market challenges persist globally, but Jacobs leverages its global delivery model to mitigate impacts. This model not only addresses cost but also taps into global talent, maintaining project efficiency and quality.
Q: Could you provide insights into the impact of recent PFAS legislation and Jacobs' positioning to capitalize on these regulatory changes?
A: (Robert V. Pragada - CEO & Director) The new PFAS regulations create long-term revenue opportunities across various sectors. Jacobs is well-positioned with existing DoD relationships and expertise in water treatment, expecting incremental growth in scope on current projects rather than entirely new projects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
